How must gift funds be properly documented for mortgage purposes?

Gift funds for mortgage purposes must be properly documented to ensure compliance with lender guidelines and to establish that these funds are indeed a gift and not a loan that must be repaid. The correct documentation consists of a gift letter from the donor, which outlines the amount of the gift, the relationship between the donor and the borrower, and a statement that no repayment is expected. Additionally, providing documentation of the gift, such as proof of transfer, confirms that the donor has indeed provided those funds. This sets a clear record for underwriters to verify the legitimacy and source of the funds for the mortgage, thus reducing the risk for the lender.

In contrast, simply having a telephone verification from the settlement agent or a letter from the borrower on its own may not sufficiently prove the validity of the gift or its source. A copy of the check, while useful, does not convey the same level of detail regarding the terms and the relationship between the parties involved as the gift letter does.